Fine, We'll Play with China

So President Obama decided not to approve the presidential permit for the Keystone XL pipeline project, but is open to reconsidering if TransCanada, the company that wants to build the pipeline, applies again with a different route.

When analyzing policy decisions, Cicero used to ask his fellow Roman senators, “Cui bono?” It’s Latin for, “Who benefits?” Amidst all the spinning in Washington, it is worth asking the same question about the Keystone decision. Let’s review the players:

President Barack Obama: Obama has made it clear that he won’t be bullied into making a decision by congressional Republicans, who imposed a deadline on him in legislation to extend a temporary payroll tax cut until the end of February. Obama threatened to veto that bill, but signed it anyway. So now he has complied with the law, but exercised his right to reject the permit. As he heads into negotiations with Congress over another extension of the payroll tax cut and an increase in the U.S. debt ceiling, the president has stood firm.

And yet, the president is open to reconsidering the pipeline. He told Prime Minister Harper that it was a decision “without prejudice.” Is Obama against Keystone until he can be for it (safely) after 2013?

Republicans: All of the GOP presidential candidates support the Keystone pipeline, and congressional Republicans do, too. The president didn’t give in to them, rejecting the Keystone permit.

Or did he? Congressional Republicans wanted to force Obama to take a position against Keystone so they had proof that he would back environmental special interests over jobs for Americans, not to mention lower energy prices. In an election year likely to revolve around economic issues, this ammunition will help Republican candidates to contrast themselves with the president and Democrats.

Environmentalists: Environmentalists praised the decision as a blow against Big Oil but if approval of the Keystone pipeline is only delayed, it sounds more like a love tap for Big Oil, knocking them off schedule, nothing worse.

If the Keystone XL pipeline is never built, the United States will continue to import Canadian oil—just not as much of it, and more from other suppliers. The larger question of U.S. dependence on fossil fuels is not addressed by a decision to not purchase from one supplier, but by a reduction in demand.

Canada: The United States can decide what oil it wants to buy and from whom, but Canadians are the ones who will decide whether to develop their oil resources, whether to export that oil, and to whom. And if the United States won’t buy more, there are plenty of customers in Asia. Japan, India, Korea, and China all have growing economies that depend on imported oil.

Prime Minister Stephen Harper has strongly backed the construction of the Northern Gateway pipeline to connect oil fields in Alberta to the Pacific Ocean, where it could be shipped by tanker. This project is expensive because its route crosses the Canadian Rocky Mountains, and native groups with rights to the land along the route have not agreed to allow it yet. Without Keystone, there will be greater momentum to build the Northern Gateway pipeline instead.

Environmentalists oppose the Northern Gateway pipeline just as vigorously as they oppose Keystone—Harper recently complained that U.S. environmental groups have been pumping money into Canada to finance opposition to this project as well. By delaying these pipelines, environmental groups hope that they can slow the flow of Canadian oil onto world markets, and thereby increase the price of oil worldwide—making alternative energy economically more attractive.

Big Oil: Yet higher oil prices will also make oil pipelines more profitable, and so Obama’s decision on Keystone will accelerate progress on the Northern Gateway. Since the Keystone debate isn’t over, opponents will have to fight on both fronts in hopes of slowing Canadian oil production. Oil producers are likely to end up with two new routes for their exports. Harper has made clear that Canadians won’t be victims of U.S. politics and will defend themselves with Northern Gateway, a route to more willing customers.

And so the winner is…

China: China is the fastest growing oil customer of all. As China’s economy keeps growing, per capita oil consumption will grow as well.

If China benefits, does the United States suffer? Not necessarily. It would not be good to deny China the oil it needs, and thereby become an enemy for Chinese growth. When western powers imposed an oil embargo on Japan in the 1930s as punishment for the Japanese invasion of Chinese Manchuria, the result was Pearl Harbor.

Besides which, if Canada can ship oil to China, then China will have less reason to seek oil from Iran or Sudan. No one worries that if China buys Canadian oil, it will subvert the Canadian government, or worsen the Canadian human rights record. From the United States’ perspective, better to have China become more reliant upon friendly countries than unfriendly ones.

On the other hand, more oil consumption by China represents a loss for environmentalists. If Canada can’t sell more oil to the United States, it will sell it to China and other Asian markets. Environmental standards in Asian markets being lower than those in North America, the net effect will be more carbon emissions per barrel of Canadian oil produced, not less.

Who benefits? The only certain winner is China. Yesterday’s decision brings China one step closer to being able to access Canadian oil, at no cost to them. As the Huffington Post’s Althia Raj reports, Stephen Harper will use his visit to China in February to promote Canadian oil. Canada may yet come out a winner in today’s Keystone decision, too.

The remaining question is how President Obama’s Keystone delay will affect the U.S. elections later this year, when American voters weighing all this will pick the ultimate winner.